FEATURECopyright: Viacomís $1 Billion Claim Against YouTube
By David MirchinOn March 13, 2007, Viacom sued YouTube and its owner, Google, for damages in excess of $1 billion for alleged infringement of Viacom’s copyrights. Viacom is the media giant that owns television programming networks and shows, including MTV, Nickelodeon, Comedy Central, and child favorite SpongeBob SquarePants, along with movie studios including DreamWorks and Paramount.

Viacom claims that YouTube has actively infringed Viacom’s copyrighted works by publicly performing more than 150,000 unauthorized clips of copyrighted programming owned by Viacom, which have been viewed 1.5 billion times. Viacom claims that this is only a small percentage of the infringing material on YouTube’s site because YouTube’s tagging system does not permit an easy search for copyrighted material. Viacom also claims that YouTube directly infringes on copyright by facilitating copies of copyrighted material that will be embedded in Web sites across the Net. Although YouTube reported that it has the technology to filter copyright-infringing material, Viacom claims that it has done nothing to prevent or curtail this massive infringement.

Content providers once wondered whether it was worth suing a startup such as YouTube. Since Google’s $1.65 billion acquisition of YouTube in October 2006, the answer to that question was easy with a defendant with such deep pockets.

The resolution of this issue is not just relevant for the large content-hosting sites such as YouTube, but the outcome could rewrite the rules and be relevant for virtually every company subscribing to Information Today, since virtually all of these companies are creating content, hosting others’ content, or doing both.

What makes this case so interesting is the timing: when increasing pressure and sentiment appear to favor protecting content owners whose content is posted on the sites of others, without giving the content owners any cut in revenues. So, in early March, the in-house attorney at Microsoft who oversees copyright law attacked Google, claiming that “companies [such as Google] that create no content of their own, and make money solely on the backs of other people’s content, are raking in billions through advertising revenue and IPOs.” The question also remains whether the Digital Millennium Copyright Act (DMCA), the main law protecting YouTube, has been distorted by being overly protective of hosting sites. The original intent was to protect sites that hosted content and acted in an “automatic” and “passive” nature. But is that really what YouTube is doing?

On the other hand, the precedents under the DMCA to date have been generally quite protective of service providers such as YouTube. And the legitimate question here is whether it is fair and appropriate to require site owners to filter and actively monitor their sites—to determine which content is infringing, and, sometimes more importantly, even if the content is infringing, whether the content should be taken down. Monitored sites might even perversely lose their safe harbors under the DMCA because they will be seen as no longer dealing in content of others but having determined themselves what can be posted.

Legislative Background

Central to Viacom’s claim is how the court will interpret provisions of the DMCA, a 1998 statute that balances the needs of content owners, such as Viacom, with those of Internet service providers, including sites such as YouTube, which host content uploaded by users. The DMCA is supposed to provide immunity from claims of monetary damages to service providers who engage in “passive,” “automatic” actions initiated by users. The DMCA ensures that Internet service providers do not need to monitor their sites for infringing material. Rather, it established a notice-and-takedown procedure: If a copyright owner complains about an alleged infringement, the site enjoys a “safe harbor” from monetary damages if it takes down the infringing material and complies with the other requirements of the statute, as described below.

Sailing into the Safe Harbor

To benefit from the safe harbor, a site must do the following:

• Adopt a copyright policy requiring termination of repeat copyright infringers in appropriate circumstances
• Implement that policy in a reasonable manner
• Inform its subscribers of that policy

These matters are the type our firm regularly advises clients on, particularly the questions as to how to implement such a policy legally. From YouTube’s Web site Terms of Use, its filing with the U.S. Copyright Office, and its stated implementation, YouTube seems to meet the necessary preconditions to be eligible for the safe harbor.

Sites such as YouTube are not entitled to the safe harbor, however, if they are “aware of facts or circumstances from which infringing activity is apparent” or if they “receive a financial benefit directly attributable to the infringing activity.”

How to Lose DMCA Safe Harbor Protection

There are several ways to lose safe harbor protection. Here are some of the key points:

Awareness of Infringing Activity. Viacom raises the question of whether YouTube was aware of such widespread infringement so it is no longer able to benefit from the safe harbor.

Actual Knowledge. The threshold question is whether YouTube had “actual knowledge” of infringements. Since sites are not required to monitor their own sites for infringements, and a simple “general awareness” that there is infringing material on a site is not sufficient to constitute “actual knowledge,” it appears that YouTube would not be deemed to have “actual knowledge” of infringements.

Apparent Knowledge. Cases interpreting the DMCA have been very protective of Web sites. For example, in the case of Hendrickson v. eBay, Inc., 165 F. Supp. 2d 1082 (C.D. Cal. 2001), the owner of the film documentary Manson sued eBay for offering to sell copies of his movie. The court held that eBay was entitled to the safe harbor protection.

Similarly, in CoStar Group v. LoopNet, a 4th Circuit case from 2004, the court held that a Web site was not liable for infringing photos of real estate posted to its site from users. In Corbis v. Amazon, where a zShop had posted infringing photos, the court said that to demonstrate “apparent knowledge,” the copyright holder had to show that the Web site was “clearly a pirate site.” A site would meet this definition if the URL and header information used terms that show that the purpose is clearly illegal. In YouTube’s case, it entered into licensing agreements with many significant owners of content, such as CBS, NBC, the BBC, and Universal Music Group. Accordingly, as the percentage of its infringing content goes down, its argument improves that it is not “clearly a pirate site.”

The DMCA’s legislative history says that a site will not benefit from the safe harbor if it turns a “blind eye to red flags” that infringing activity is taking place. Because of the mass of infringing videos on YouTube’s site, here’s the question: Should YouTube have seen the red flag? The legislative history does not indicate how big or red that flag must be, and no case has addressed this issue. This may be the first to do so.

Financial Benefit. The DMCA also provides that YouTube will not benefit from the safe harbor if it “receives a financial benefit directly attributable to the infringing activity.” The legislative history would seem to provide arguments for both sides. YouTube’s position is strengthened since the Senate Report on the DMCA states that no direct financial benefit exists in the case where “the infringer makes the same kind of payment as non-infringing users of the provider’s service.” Nevertheless, Viacom could argue from the legislative history that courts are supposed to apply a “common-sense, fact-based approach and not a formalistic one.” In that case, Viacom could argue that the value of the YouTube service lies in providing access to infringing material, so it does receive a direct financial benefit from the infringement.

In practice, some courts may be influenced by the amount of infringing activity on a site. In the 2001 case of Adobe Systems v. Canus Productions, for example, the court held that the operator of a computer fair was not liable to Adobe because only about 100 copies of the infringing software were being sold and that this was not a major attraction for the 15,000 people who attended.

Similarly, in the CoStar v. LoopNet case, the court held that the direct financial benefit test was not met. In that case, a plaintiff claimed that 300 of the 33,000 photographs of commercial real estate infringed its copyrights. That case also said importantly that there was no direct financial benefit because the site did not charge to upload infringing material. However, in the 2001 Circuit Court decision in A&M Records v. Napster, the amount of infringing music on the site was a major factor holding the site liable for vicarious copyright infringement. Accordingly, an important question will be whether the court addresses the relevance of a significant amount of infringing material on the YouTube site.

Perhaps the most important case is the one now on appeal. In Perfect 10 v. Google, plaintiff Perfect 10 sued Google over thumbnail images of its photos of nude women that were viewable by an image search. Although the court held that Google was not vicariously liable for copyright infringement, it held that Google directly financially benefited from infringing photos because Google’s ad revenue increased every time the images were viewed. The court did not require the plaintiff to prove that the images were a significant “draw” to attract people to the image search site. This is different from the cases above (CoStar v. LoopNet and Adobe v. Canus), where the court assessed the importance and quantity of the infringing material.

So a key legal question will be this: Will the court import the Perfect 10 v. Google vicarious infringement test of
“direct financial benefit” to the DMCA? This is a test that would be easy for Viacom to meet and would strip away YouTube’s DMCA safe harbor. My own view is that the Perfect 10 v. Google test would make too many sites liable under the DMCA and is too low a threshold to eliminate the safe harbor. I believe that it is not the correct approach to meet the legislative goals of the DMCA, which permit sites to host content posted by third parties.

This case may also address two other critical questions under the DMCA:

• Requirement to Monitor? Is YouTube required to monitor its site for copyright infringing material if it has the technology to do so? This would upend the basic assumption of the DMCA that site owners are not required to censor, filter, or preview material. It would be surprising if the court required active monitoring. YouTube reported that it would only use copyright-protection measures for parties that entered into a licensing arrangement with it. Although courts, such as in the Grokster case, have been reluctant to require companies to design their products to minimize infringement, the question is whether YouTube, which has this technology and knows of infringing activity on its site, is required to apply this technology. This could have an impact on whether sites must actively monitor their activity. It would be surprising if a court required YouTube to monitor its site actively.

• Specificity of DMCA Notice. How specific do the notices of infringing material need to be? Can Viacom, for example, say to YouTube, “All clips from MTV are infringing. You go find and take down those clips!”? Or does Viacom need to provide the URL to each infringing file? Although this sounds like a technical question, it has a meaningful, practical influence on whether a site must proactively monitor its own site for recurring infringements.

Applying the Grokster ‘Active Inducement’ Theory

Another big issue for YouTube is how the court will apply the new “active inducement for copyright infringement” theory articulated in the 2005 Supreme Court decision of MGM Studios v. Grokster. In that case, the Supreme Court held Grokster liable for distributing peer-to-peer software because its business model was premised on infringement—it benefited from the high-volume use of infringing software.

The question is whether the court will similarly say that YouTube is liable for actively inducing infringement because it benefits from ad revenue that is directly tied to the quantity of infringing material. Viacom’s complaint also focused heavily on YouTube’s active strategy of permitting videos to be embedded in sites throughout the Net and not just on www.youtube.com. In so doing, Viacom claims that YouTube has taken an active part in directly infringing Viacom’s copyright.

The Next Steps

Many commentators believe that Viacom sued YouTube to obtain negotiating leverage to get a better licensing deal with YouTube. Others believe that it simply tried to gain publicity, and particularly to draw marketing attention to its deal with Joost, billed as “a new way of watching TV on the internet.” Because of the powerful arguments that Viacom has—due mainly to the widespread distribution of infringing material on YouTube’s site—and the strong defenses that YouTube can raise—due mainly to the structural protection of the DMCA that provides a safe harbor for sites such as YouTube—this could lead to an important legal precedent to influence whether user-posting sites continue to expand rapidly.

In my view, the case will probably settle rather than go to final judgment. Both sides have too much to lose with an unfavorable court decision. While the facts are difficult for YouTube, the law (particularly the DMCA) is in its favor, making the outcome of this case quite difficult to predict.

Practical Tip

Napster was unable to enjoy DMCA protections because it failed to follow the formalities of establishing and implementing a correct copyright policy and filing with the U.S. Copyright Office. Every site that permits postings by users should be sure to do the following:

• Establish a copyright policy that meets the DMCA requirements

• Implement that policy to terminate repeat copyright infringers and meet the other requirements of the DMCA

• File a proper notice with the U.S. Copyright Office

David Mirchin is the partner heading the technology and licensing practice for the Israeli law firm Meitar, Liquornik, Geva & Leshem Brandwein. He regularly counsels information companies on licensing, commercial, and copyright issues in North America, Europe, and Israel. His email address is dmirchin@meitar.com.
Send your comments about this column to itletters@infotoday.com.